US and European stocks staged a powerful recovery on Friday to trim the losses from a frenetic week of trading, as governments and central banks around the world stepped up their efforts to limit the damage from the coronavirus pandemic.
Wall Street rallied into the close, sending the S&P 500 index of US equities up 9.3 per cent, while the return of risk appetite sent the yield on the US Treasury above 1 per cent for the first time in more than a week. Half the equity market gains came in the final half-hour of trading.
US President Donald Trump declared a national emergency and announced measures to expand testing of Americans, along with purchases of oil for the strategic petroleum reserve and a suspension of interest payments on federal student loans.
The tech-heavy Nasdaq ended up 9.3 per cent. The price of a barrel of Brent crude oil was up 4.6 per cent at $34.80.
Earlier, London’s FTSE 100 closed 1.6 per cent higher, having peaked up more than 5 per cent following the steepest sell-off since the crash of 1987. The Stoxx Europe 600 also gained 1.4 per cent following its worst single session in history.
“The market has been volatile in ways I haven’t seen before,” said Todd Jablonski, chief investment officer of portfolio strategies for Principal Global Investors. “The ferocity of the move is what has caught investors off guard.”
Circuit breakers have been hit multiple times this week after both large falls and large drops, underlining the scale of the market volatility. The Cboe volatility index — known as Wall Street’s “fear gauge” — this week jumped to its highest levels since the financial crisis.
Sentiment improved on Friday as government after government stepped in with attempts to cushion the financial and economic damage from the coronavirus outbreak. Germany, Europe’s biggest economy, said it was prepared to deploy unlimited cash to companies hurt by the pandemic. The EU said it was prepared to use emergency flexibility in the bloc’s budget rules as it pledged to do “whatever is necessary” to support the economy.
The People’s Bank of China on Friday cut reserve requirements for banks in a move to ease borrowing conditions for companies that have been disrupted during the past six weeks. The central banks of Norway and Canada cut interest rates, while the Bank of Japan bought billions of dollars of Japanese government bonds, the Reserve Bank of Australia injected A$8.8bn (US$5.5bn) into the financial system.
The US Federal Reserve also said on Friday it would buy $37bn of Treasuries, accelerating a plan unveiled on Thursday that included the injection of trillions of dollars of short-term loans to address disruption to the government bond market. The yield on the benchmark 10-year note stood at 1.01 per cent, up 21 basis points from Thursday’s level. Yields rise when prices fall.
Securities watchdogs in Europe also moved to try to calm markets. Italian and Spanish market regulators banned bets against 154 stocks in an attempt to lessen the tumult in their equities markets. The short selling bans were at present in effect for Friday’s trading session only.
Economic disruption across Europe is mounting as the virus spreads. France has urged its citizens to avoid travel and has closed schools; Belgium will shut schools, restaurants and bars later on Friday; and in Italy, which is suffering the most severe outbreak in Europe, the 60m population has been living under lockdown for much of this week.
Markets have reflected these extraordinary circumstances. The Stoxx Europe 600, which tracks the region’s largest companies, has dropped more than 30 per cent in less than a month, while government bonds have rallied as investors search for safe corners of the market.
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Markets in Asia-Pacific staged wild moves on Friday, with Sydney’s S&P/ASX 200 swinging more than 12 per cent during the day before closing 4.4 per cent higher.
Japan’s Topix index closed 5 per cent lower after earlier trading down as much as 9 per cent.
Investors remained cautious about dipping their toes back into the market, said Masamichi Adachi, an economist at UBS in Tokyo. One trader in the Japanese capital said: “Nobody wants to hold any positions into the weekend.”
Elsewhere, China’s CSI 300 index of Shanghai and Shenzhen-listed stocks dropped 1.4 per cent while Hong Kong’s Hang Seng was off a similar amount. Both indices staged sharp recoveries from earlier losses.
Additional reporting by Jim Brunsden in Brussels and Don Weinland in Beijing
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